What is the permanent income hypothesis?
A)the idea that the marginal propensity to consume does not change over time
B)the idea that consumption is based on permanent income rather than current income
C)the idea that temporary changes in income lead to the largest changes in total consumption
D)the idea that consumption is based on current income rather than permanent income

Question

Quizplus · Accepted Answer

The permanent income hypothesis is the idea that consumption is based on permanent income rather than current income. This means that people make consumption decisions based on their long-term, average income, rather than any temporary changes in their current income.

What Is the Permanent Income Hypothesis